The main ingredient that gets any business running, whether big or small, is capital. However, almost every company faces a financial shortage now and then due to various reasons. A business loan or a business line of credit can act as your savior in such situations.

Wondering how? Keep reading to know everything you need to know about a line of credit.

What is a business line of credit?

A business line of credit or LOC is a business financing system that offers you a predetermined amount of funds. It is a flexible system that helps boost your growth and generate revenue for your enterprise. The critical difference between a loan and a LOC is that the latter is a revolving loan that works like a credit card. Thus, the amount is disbursed according to your requirement.

Moreover, you can draw as much as you need. And you only have to pay interest on the portion you withdrew and not the entire principal amount. Lastly, the business loan interest rates are generally higher than LOC’s.

How can it help your business?

If you are a small business owner, a business LOC can be an excellent choice for you as you can’t always predict your sales and revenue. Here are some benefits of opting for a LOC for your business:

1. Ample cash flow during a slow season

A business LOC is ideal for balancing cash flow during a slow business season. For instance, if you run a retail store that makes maximum sales during the holidays, you might face a cash shortage during other times. This can make it challenging to pay your employees and run operations. In this scenario, business LOC is the logical solution for your business.

Besides, it is easier to acquire a LOC as business loan eligibility conditions are usually relaxed.

2. Pay for what you need

With business finance, you borrow a lump sum amount you think you require to fulfill your needs. And you must repay and pay interest on the entire sum. In contrast, a LOC enables you to borrow an amount but only pay for the amount you use.

However, business finance also includes fixed business loan interest rates. Whereas in a LOC, the rates can change with time.

3. Improves business adaptability

When running a business, you must always be prepared for and take advantage of new opportunities. But sometimes, you don’t have the capital to do so, which might affect you in the long run. Hence, taking a LOC can improve your adaptability, and you won’t have to miss out on fantastic business opportunities.

The takeaway

Access to a steady stream of funds can be a blessing for a business going through a financial slump. Whether to upgrade machinery or launch a new product, you can achieve it all by opting for a business line of credit.

But if you want a large sum at a fixed interest rate, opting for a business loan makes more sense. After all, you can calculate your monthly EMIs by using the business loan EMI calculator and stay on track.